Definition§
An Overhead Analysis Sheet, often referred to as an Overhead Distribution Summary, is a detailed document used in cost accounting to charge manufacturing overhead costs to the different cost centers within an organization. This allocation is achieved by employing appropriate allocation or apportionment techniques that systematically distribute each item of manufacturing overhead.
Examples§
- Factory Overheads: If the total heating cost for a factory is $10,000, an overhead analysis sheet might allocate this cost based on the square footage occupied by each department within that factory.
- Administrative Overheads: Similarly, if administrative expenses like supervisor salaries are to be distributed, the allocation might be based on the number of employees in each department benefiting from the supervisor’s work.
Frequently Asked Questions§
What is the purpose of an overhead analysis sheet?§
An overhead analysis sheet is used to systematically distribute overhead costs to various cost centers, allowing for more accurate product costing and financial analysis.
How are overhead costs allocated to cost centers?§
Overhead costs are allocated to cost centers using allocation bases such as direct labor hours, machine hours, or square footage. The chosen basis should reflect the extent to which each cost center consumes the overhead.
What is the difference between allocation and apportionment in overhead analysis?§
Allocation refers to the direct assignment of overhead costs to a specific cost center, while apportionment involves distributing a portion of an overhead cost to multiple cost centers based on a predetermined ratio or formula.
Why is the overhead distribution summary important?§
It ensures that overhead costs are accurately charged to the related cost centers, leading to precise product costing and better financial control.
Can service departments be included in the overhead analysis sheet?§
Yes, service departments like maintenance, IT, and administration can also have their overhead costs allocated to production departments to provide a complete picture of overhead distribution.
Related Terms§
- Manufacturing Overhead: These are all indirect costs associated with producing a product, including facility maintenance, utilities, and equipment depreciation.
- Cost Centers: These are individual departments or functions within an organization where costs are accumulated and controlled.
- Allocation: The process of assigning whole overhead costs directly to cost centers.
- Apportionment: The process of distributing a portion of overhead costs to multiple cost centers based on a rational basis.
Online References§
- Investopedia – Overhead
- AccountingTools – Allocation of Overhead
- The Balance Small Business – Types of Overhead
Suggested Books for Further Studies§
- Cost Accounting: A Managerial Emphasis by Charles T. Horngren, Srikant M. Datar, and George Foster
- Management and Cost Accounting by Colin Drury
- Manufacturing Overhead Cost Planning and Control by Ronald L. Brown
Accounting Basics: Overhead Analysis Sheet Fundamentals Quiz§
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